December 11, 2024 The premium tax credit (PTC) is a refundable credit that helps individuals and families pay for insurance obtained from a Health Insurance Marketplace (commonly known as an “Exchange”). A provision of the Affordable Care Act (ACA) created the credit. The American Rescue Plan Act (ARPA), signed into law in March 2021, made several significant enhancements to the PTC. Although these changes expand access to credit for individuals and families, they could increase the risk premium tax credit penalties for some businesses. Table of Contents More Premium Tax Credit Eligible People Under pre-ARPA law, individuals with household incomes above 400% of the federal poverty line (FPL) were ineligible for the PTC. Under ARPA, for 2021 and 2022, the PTC is available to taxpayers with household incomes that exceed 400% of the FPL. This change will increase the number of premium tax credit-eligible people. For example, a 45-year-old single person earning $58,000 in 2021 (450% of FPL) would have been ineligible for the premium tax credit under pre-ARPA law. Under ARPA, that individual is eligible for a PTC of about $1,250. Lower-Income Cap The premium tax credit is calculated on a sliding scale based on household income, expressed as a percentage of the FPL. The amount of the credit is limited to the excess of the premiums for the applicable benchmark plan over the taxpayer’s required share of those premiums. The required share comes from a table divided into income tiers. Because the required share is less under the new tables for 2021 and 2022 than it otherwise would have been, the PTC will be greater. Under pre-ARPA law, a taxpayer might have had to spend as much as 9.83% of household income in 2021 on health insurance premiums. Under ARPA, that amount is capped at 8.5% for 2021 and 2022. More Exposure to Premium Tax Credit Penalties As mentioned, the expanded PTC will help individuals and families obtain coverage through a Health Insurance Marketplace. However, because applicable large employers (ALEs) potentially face shared responsibility premium tax credit penalties for full-time employees. Expanded eligibility could increase premium tax credit penalties for ALEs that don’t offer affordable, minimum-value coverage to all full-time employees as mandated under the ACA. An employer’s size, for ACA purposes, is determined in any given year by the number of employees in the previous year. Generally, if your company had 50 or more full-time or full-time equivalent employees on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is someone employed on average at least 30 hours of service per week. Assess Your Premium Tax Credit Penalty Risk If your business is an ALE, be sure you’re aware of this development when designing or revising your employer-provided health care benefits. Should you decide to add staff this year, keep an eye on the tipping point of when you could become an ALE and could potentially face premium tax credit penalties. KatzAbosch can further explain the ARPA’s premium tax credit provisions and help you determine whether you qualify as an ALE — or may soon will. Contact us for more information. Updated November 2024
